What Does Banking Delinquencies Actually Mean?

If one goes by the oxford dictionary on banking and finance it defines Non-Performing Assets (NPA) as “A loan on which the interest payments or capital are either in default or close to being so.” Similarly, Non-Banking Assets (NBA) are those mortgaged items mopped up by bank for failure to repay the loan which it intends to sale to conjure up the unpaid obligations, This is the standard technical definition painting the finished picture of what we shall term as banking delinquencies. But if one deeply delves into it there is another story altogether.

NPA and NBA has been the most talked about banking stat in economic discourse in the country as of late as it has increased multifold in the last few years. So, what exactly does these banking delinquencies actually mean or portray?

First, banking delinquencies represents inefficiency of lenders. It reflects about the ineffectiveness in risk management and under writing process of the lenders. It highlights carelessness and lapse of credit approval process. In few rare cases it highlights the mal-intention of lenders towards someone else’s money and the need for profit taking over the safety of innocent depositors.

Second, it indicates the inefficiency or the capacity problem within the private sector. The business that was started on whim without any feasibility study or the lack of managerial capacity to steer it properly. It also at times signifies the misuse of fund and misuse meaning using money on causes other than in aforementioned purpose while taking loan, a crime as per the laws and like the world over on speculative sector which are rather risky and often fall prey to inevitable regulatory control.

Third, it exhibits the sheer incompetence of the regulator. It showcases their lack of knowledge and expertise despite huge resources of the country poured in them to properly regulate the financial sector. It also highlights the carelessness and indifference towards their duty trusted in them by the nation, at times deliberately.

Fourth, it highlights the excess in consumption made by consumers backed by credit, one that got made before earning it.  There has been significant change in pattern of consumption pattern of Nepali people. If one looks around, the choices and grandeur have grown like never before, The instance of increased cases of buying personal vehicles and replacing as if it were toys to company bringing in exchange offers for junks. Expensive mobiles phones been brought and replaced as if it were indispensable to livelihood. The extension and grandeur of life events to people celebrating every other life event in themes with the nonsensical “YOLO”. All these have been being backed or subsidized by credit and failure to repay them gets reflected as banking delinquencies. The wokeness and irresponsibility on financial matters gets reflected as the same.

Fifth, it gives a grand validation to the thought of planning for poor economy like ours. While market forces determining the price and quantity is rather enticing it comes with its own set of wastages and the real question is can an economy like ours actually afford to bear the sunk cost or wastages of it, it simply can’t and while hand of god is romantically expected to appear, we forget that god too has only two hands and those seemingly always are busy being stretched to two sides across the Atlantic and we only get dealt with the bottom , a suffocating experience. These wastages in the all sectors of economy due to ability to absorb produced output or the stock maintained gets reflected as banking delinquencies.

Sixth, it raises a question of suitability of the ongoing trend of directed growth experiment which has been the case for much of the past decades. The act of fiscal authority introducing a magical number and monetary authority producing money to swing the process needs to be backed by sufficient capacity in the economy that produces tangible output. Any deviation from that tangibility, the deviation morphs into banking delinquencies.

In totality it reflects financial indiscipline of industrial scale shown by all of us and if history has taught us one thing it is that indiscipline always leads to sufferings, the suffering for all of us seems like will continue for a foreseeable future.

Article By: Nischal Koirala